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Saturday, November 27, 2010

The following is a helpful visual to show the bail out needs to fund the upcoming bankrupcy of Ireland, Portugal, and Spain, which I discussed in detail on Wednesday.

Under the current size of the EFSF (which is the European bail out fund, similar to the TARP bail out fund created in America) they have 565 billion euros still available.

After an estimated 85 billion for Ireland, 50 billion for Portugal, and 449 billion needed for Spain, they would be short 19 billion euros:

After realizing that the market would put together this simple math, the second in command at the European Central Bank (The equivalent to our Federal Reserve) Axel Weber had this to say:

"It should be easy to convince markets with the EFSF backstop that speculation against governments will not be successful. The facility provides for up to E440 billion in government-guaranteed loans, which is in addition to a pre-existing E60 billion EU emergency fund. The IMF has also pledged up to E250 billion, bringing the total pot to E750 billion. Weber said he was convinced that if the E750 billion is not enough, Europe's political leaders "will do more."

Translation: If the European leaders do not have the political will to bail out everyone, or if it is just simply not possible with the funds available, the European Central Bank stands ready to print.

(Not to get too far ahead, but next up on the bail out list would be Italy. Then it would move over to either the UK or Japan, and it will finish with the United States. All will need a fresh ocean of printed bills to cover the tab)

Thursday, November 25, 2010

In a sea of chaos that is the current global political environment, every once in a while you can hear a voice of reason from within the pure madness that now governs our world. One of those voices was heard this week at the European Parliament.

Wednesday, November 24, 2010

The following video provides a terrific account on how the end of the dollar will occur. My view since the inception of this site is that the pressure within the markets will build and build, and the collapse will come suddenly. It is possible this could occur in the span of one trading day, and the video below explains how this can/will happen.

It is important to note that the creators of this video have left nothing out in terms of how America could respond to this crisis and stop the dollar from falling. The government will be completely helpless.The only solution they will have to try and stop the run on the dollar will be for the Federal Reserve to print additional money which is the equivalent of dumping gasoline on the fire.

Happy Thanksgiving to you and your family. Let's hope that and I am wrong and this is not the outcome for the financial markets.

The focus of this site is to study the past in great detail, observe what is taking place around us in real time, then process that information to get an understanding and form a discussion about what is coming in the future. To stay focused on the future tense.

With Greece and Ireland now taking home their cozy bail out money for the holidays, the focus will be on the next two dominoes in line: Portugal and Spain.

Before we get there let's take a look at the size and scope of the Greek and Irish bail out to get an idea of the current blueprint being used.

In 2009 the GDP (Gross Domestic Product, which is the measure of the total size of an economy) for Greece was $331 billion. Ireland was $221 billion.

All these countries we are discussing run an annual deficit, which means they have to borrow from the market in order for their government to pay their bills every year. Their income (taxes) are less than their expenses.

It appears the blueprint for the EU bailout committee has been to provide the countries with 3 times their annual deficit.This means they will give them enough money to cover their annual shortfall for the next 3 years. Their hope is that this will calm the market and give them time to put together some sort of strategy to fix the problem. (Which they won't, but that is for another discussion)

Using this strategy, the final total for the Greek and Irish bailouts have come in at 90 billion euros, or $122 billion.

With this blueprint in mind we can now focus on the coming cost to bail out Portugal and Spain.

Portugal is anticipated to run very similar in size to Greece and Ireland; their GDP is close in size at $233 billion. Their bailout will follow Greece's model, however, because it will be needed for their collapsing economy and unemployment. Ireland's was needed to cover bank losses.

Everything good so far. Just another speed bump along the way, right? Right, but here is where it gets interesting:

Spain is not similar in size to these 3 countries: it is a MONSTER. Its GDP is $1.468 trillion, twice the size of the other 3 combined.

In order to cover their annual deficit for the next 3 years and follow the current blueprint the total cost will be: 450 billion euros or $600 billion!

This will take an enormous amount of political will to force a bail out of this size through using the current process in place. (Remember, other countries in the EU have to band together to pay the bill, along with the IMF which is composed of funds from many countries outside the EU such as the United States)

This is why these events are so important to be thinking about now, and you have to track the political atmosphere daily to determine how your portfolio will be affected from either outcome.

Stay tuned, I will be tracking these events in real time as we progress forward.

Tuesday, November 23, 2010

The Fed minutes were released today from their policy meeting when they made the Quantitative Easing 2 announcement.

From the minutes:

"Most participants judged that a program of purchasing additional longer-term securities would put downward pressure on longer-term interest rates and boost asset prices; some observed that it could also lead to a reduction in the foreign exchange value of the dollar. Most expected these changes in financial conditions to help promote a somewhat stronger recovery in output and employment while also helping return inflation, over time, to levels consistent with the Committee’s mandate."

The Fed is now openly announcing that their new mandate is to promote higher asset prices (the stock market) by reducing the value of the dollar.

Unfortunately for the Fed, stocks are not the only asset investors can purchase with their newly printed dollars. There is also an asset called agriculture. The following chart shows the world food price index over the last few years. As the Fed continues to pour new money in, the cost of food moves up and people begin to starve around the world.

The circle to the left highlights the level food prices needed to reach to create riots around the world back in the summer of 2008. It also shows that prices have now once again reached that price point. Moving forward the Fed will need to decide between global starvation or allowing the stock market to fall to its free market level.

Monday, November 22, 2010

Legendary investor Jim Rogers took some time to speak with RT news with his thoughts on the Ireland bail out last night. (video below)

To understand the situation in simple terms:

The Irish banks owed a tremendous amount of money which they did not have the ability to pay back.

If the banks could not pay back these loans there would have been major losses on the balance sheets of other banks around the world including the United States who lent the Irish banks this money.

Ireland accepted a bail out from the EU and IMF by borrowing additional money to pay off these loans. The banks still have the original debt, plus the country now has the new debt which will need to be paid for by their citizens.

Pay close attention as the European debt crisis will emerge on our shores very soon in places you may heard of such as: California and Illinois.

Fortunately Americans will have to make no sacrifice similar to the Irish who will now see budget cuts for public workers and tax increases as part of the bail out.

We have a savior named Ben Bernanke who will simply purchase the toxic debt from California and Illinois.

In other news today Coin Updates News is reporting massive silver shortages in the physical market as it become tougher and tougher for investors to acquire the actual metal.

Sunday, November 21, 2010

I'm up in DC this weekend visiting some friends and watching a lot of football. I enjoy coming up here when possible because it is like taking a trip to another country.

Everywhere you go, every restaurant and bar is packed and people are throwing around money like it's 2007. This city has not skipped a beat during the entire recession and many of my friends up here do not believe me when I tell them what it is like in places in America outside the beltway.

DC is the last great bubble in America. It is the visual representation of our government's ridiculous spending. The Federal government continues to hire workers at a reckless pace and pay them extravagant sums of money with only the promise for pay increases in the future.

They do this as our country is already bankrupt on paper and now only waits for the markets to remove confidence in our debt and end the absurdity. (Just as the market recently did with Greece and Ireland, and they will do to Portugal next)

The market is taking down the smaller weak countries first and they will move to the United States last. After ending Portugal's government spending spree, the market will move on to Spain and then either the UK or Japan.

The United States will most likely be the last government debt bubble to collapse and when when it goes it will explode in spectacular fashion as this is the largest debt bubble the world has ever seen.

In the meantime our country is held together by two components:

1. The food stamp program which is growing at an exponential pace

2. Emergency federal unemployment insurance. This program is set to expire on December 1st and would leave 2 million Americans broke and starving. There would be 6 million uninsured by the first quarter of 2011. Look for this program to be extended soon by Congress.

The following video provides a visual on the growth of the food stamp program from the start of our current depression in 2007 through today. Once the US government debt bubble explodes and they are no longer able to support America through food stamps and unemployment checks, America's true economic power will be revealed. It will be crystal clear that the emperor has no clothes.

In the meantime I will enjoy the rest of the afternoon up here in the bubble, and hope that my friends appreciate the artificial wealth around them before it disappears for good.

"It's waiting that helps you as an investor, and a lot of people just can't stand to wait."

- Charlie Munger

"Live as if you were to die tomorrow. Learn as if you were to live forever."

- Gandhi

"One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do. I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I wait for a situation that is like the proverbial shooting fish in a barrel."

- Jim Rogers

"Capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich."

- James Grant

"At this juncture, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained."

- Ben Bernanke, March 2007

"Everything that needs to be said has already been said. But since no one was listening, everything must be said again."

- Andre Gide

"When people are getting richer and richer but they're not actually producing anything, it can't end well."

- Louis CK

"In economics things take longer to happen than you think they will, and then they happen faster than you thought they could."

- Rudiger Dornbusch

"I don't write about what I know. I write to find out what I know."

- Patricia Hampl

"Chains of habit are too light to be felt until they are too heavy to be broken."

- Warren Buffett

"Everyone has a plan until they get punched in the mouth."

- Mike Tyson

"Interest on the debt grows without rain."

- Yiddish Proverb

"You can have comfort, or you can have value. You cannot have both."

- Jim Grant

"Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful."

- Warren Buffett

"No very deep knowledge of economics is usually needed for grasping the immediate effects of a measure; but the task of economics is to foretell the remoter effects, and so to allow us to avoid such acts as attempt to remedy a present ill by sowing the seeds of a much greater ill for the future."

- Ludwig von Mises

"Men who can both be right and sit tight are uncommon."

- Jesse Livermore

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

-Ludwig von Mises

"Most investors think quality, as opposed to price, is the determinant of whether something's risky. But high quality assets can be risky, and low quality assets can be safe. It's just a matter of the price paid for them."

- Howard Marks

"Whenever you find yourself on the side of the majority, it is time to pause and reflect."

-Mark Twain

"None are more hopelessly enslaved than those that falsely believe they are free."

-Goethe

"The longer the markets disobey basic rules of valuation, the bigger the opportunity for good investors to reap the benefits. Value investing works precisely because markets become dysfunctional at times."

-John Coumarianos

Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.

-Sir John Templeton

"No very deep knowledge of economics is usually needed for grasping the immediate effects of a measure; but the task of economics is to foretell the remoter effects, and so to allow us to avoid such acts as attempt to remedy a present ill by sowing the seeds of a much greater ill for the future."

- Ludwig von Mises

"People only accept change in necessity and see necessity only in crisis."

-Jean Monnet

Requiring a central bank to print money to increase government's purchasing power invariably ignites a hyperinflationary firestorm. The result through history has been toppled governments and severe threats to societal stability.

- Alan Greenspan

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

- Henry Ford

"Do you want to sell sugared water for the rest of your life? Or do you want to come with me and change the world?"

-Steve Jobs

"I'd be a bum on the street with a tin cup if the markets were always efficient."

-Warren Buffett

"The market can stay irrational longer than the investor can stay solvent."

- Keynes

"While the government struggles to save one crumbling enterprise at the expense of the crumbling of another, it accelerates the process of juggling debts, switching losses, piling loans on loans, mortgaging the future and the future's future. As things grow worse, the government protects itself not by contracting this process, but by expanding it."

-Ayn Rand, 1974

"The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function."

- F. Scott Fitzgerald

"All our life, so far as it has definite form, is but a mass of habits - practical, emotional, and intellectual - systemically organized for our weal or woe, and bearing us irresistibly toward our destiny, whatever the latter may be."

-William James

"Men it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."

-Charles Mackay

The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.

- Stephen Hawkings

"Give me control of a nations money supply, and I care not who makes it's laws."

- Amschel Rothchild

Illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality against which they are dashed to pieces.

- Sigmund Freud

Many of life's failures are people who did not realize how close they were to success when they gave up.